Retirement Planner: I'm more than happy to pay my share

By Stephen J. Butler sbutler@pensiondynamics.com

Posted:
12/28/2012 12:01:00 PM PST

Updated:
12/28/2012 04:47:37 PM PST

In 1978, my Dad came from the mailbox waving his first Social Security check and yelling, "I'm rich! I'm rich!" No surprise. Every dollar he had earned since the 1930s had some money deducted for his retirement benefit that commenced 40 years later.

In 1960 at age 16, my first real job was the summer I worked for the town road crew. Out of my $1.25 per hour minimum wage, they deducted my Social Security tax. Later, both Dad and I endured what most tax historians agree was the largest single tax increase in American history. That was when Ronald Reagan, on the advice of Alan Greenspan, dramatically raised the Social Security tax rate to strengthen the system and create the multitrillion-dollar reserve the fund enjoys today.

So, why do we keep referring to this as an "entitlement" program with the usual stigma attached to that word? Until recently, "entitled" usually was said of some young people acting like the world owed them a living. "Moochers," in other words.

Self-funded programs like Social Security and Medicare shouldn't be stigmatized, and they shouldn't be muddying the waters of the "deficit reduction" debate. They don't depend on income tax revenue, and they aren't "going broke" any more than the military is "going broke." If we believe that something is serving a useful purpose, we'll do what we need to do to satisfy its funding requirements.

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I don't begrudge one dime of what I pay into the combination of Social Security and Medicare systems. And as a small businessman, I pay both halves (employee and employer) of what my salary triggers as the annual requirement, so there's no smoke-and-mirrors effect hiding the one-half portion of the true cost of my contribution as an employee.

For the past 34 years, I've had the satisfaction of knowing that what I was contributing helped support the benefits received by my parents -- people I otherwise would have been obligated to partially support if Social Security hadn't existed. Anyone arguing that I would have saved all that money and had plenty of my own reserve is clueless with respect to understanding human nature and its lack of discipline.

Then there were the joint replacement operations -- a total of four hip replacements for my Dad and a hip and a knee for Mom. Medicare and Dad's supplemental health policy paid by his previous employer for its retirees covered the entire cost. That employer, by the way, recently reneged on the original compensation agreement to cover former employee health insurance costs in retirement. The company has switched to a voucher system to save money, so Dad now has a substantial cost that didn't previously exist. If any word deserves a stigma, it's "vouchers."

So when it comes to my cost of Medicare, again, I pay both halves for myself as both employee and employer. My total is 2.9 percent -- but applied to my entire salary. It doesn't stop at the $110,097 cap like Social Security.

In my case, I have been contributing a healthy amount per year into the Medicare system, which has felt good considering that it has supported the needs of my parents. Without Medicare, there is no way either of them would have been insurable after they had retired. Paying out of pocket at a cost of $30,000 to $50,000 for those operations back then would have wiped out much of their net worth. Knowing them, they would have refused my help and just preferred to endure a wheelchair-bound life of pain.

My immediate gratification from paying into these government programs, then, has derived from knowing that I was supporting the needs of my parents. But hey. After 50 years of jogging, a few joint replacements for me might be just around the corner.

So these programs aren't going broke. Social Security is projected to have just used up its reserve cash in 2033, but that's not to say that we can't create more financial incentives for recipients to wait longer, and/or we can increase the contribution amount. As for Medicare, that program's reserve (again, its excess cash) is slated to run out in 2024, but if we have to then raise premiums let's remember that every dime we spend goes right back into the economy to health care providers, one of the fastest-growing, job-growth areas. And, unlike what some call "political pork," this stimulus money is spread across all congressional districts -- not just those lucky ones where, for example, jet fighter planes are made at a cost of $135 million -- each.